Federal Savings & Loan Ins. Corp. v. Kearney Trust Co.

• Decision Date: 14 November 1945
• Docket Number: No. 13067.,13067.
• Court: U.S. Court of Appeals — Eighth Circuit
• Parties: FEDERAL SAVINGS & LOAN INS. CORPORATION v. KEARNEY TRUST CO., KEARNEY, MO.

151 F.2d 720 (1945)

FEDERAL SAVINGS & LOAN INS. CORPORATION v. KEARNEY TRUST CO., KEARNEY, MO.

No. 13067.

Circuit Court of Appeals, Eighth Circuit.

October 9, 1945.

Rehearing Denied November 14, 1945.

Charles M. Miller, of Kansas City, Mo. (Ray E. Dougherty, of Washington, D. C., on the brief), for appellant.

Clay C. Rogers, of Kansas City, Mo. (James S. Simrall, of Liberty, Mo., on the brief), for appellee.

Before GARDNER and THOMAS, Circuit Judges, and MILLER, District Judge.

THOMAS, Circuit Judge.

This is a case arising under the laws of the United States. The suit was brought by the appellant, Federal Savings and Loan Insurance Corporation, as assignee of claims originally owned by the Liberty Federal Savings and Loan Association of Liberty, Missouri, to recover a total of $19,600 with interest. The defendant, appellee, Kearney Trust Company, is a corporation engaged in a general banking and trust business at Kearney, Missouri, situated about eleven miles from Liberty, the home of the Loan Association.

The Loan Association was organized under the provisions of the Home Owners' Loan Act of 1933, 48 Stat. 128, 12 U.S.C.A. § 1464. The Insurance Corporation was organized under the National Housing Act of 1934, 48 Stat. 1246, 12 U.S.C.A. §§ 1725-1732. Section 1726 provides that: "(a) It shall be the duty of the Corporation to insure the accounts of all Federal savings and loan associations."

The plaintiff's claim against the defendant is for money had and received. The complaint is in 15 counts and is based upon 15 checks issued by the Loan Association against its funds deposited in the First National Bank of Liberty, Missouri. The checks were all drawn payable to the order of the defendant bank and when received by it were wrongfully credited on its books to the president of the association and paid out on his order for use in his personal business. The checks ranged in amount from $200 to $2,500, and were issued at various times from November 12, 1941, to July 12, 1943.

During the time these transactions occurred, and for several years prior thereto, one Harold Wilson was president of the Loan Association and his sister-in-law Aileen Chrisman was its secretary. They were the only employees in charge of the business of the association and each had authority to draw checks on its funds. During the same period Samuel T. Kelly was vice-president and cashier of the defendant bank. No business relation had existed at any time between the Loan Association and the defendant bank. The testimony is not disputed that the checks were drawn and signed by Wilson or by Chrisman at his direction and made payable to the defendant Trust Company. They were sent by mail to the defendant and when received they were handled as cash items and credited, not to the Loan Association, but to an account under the name of "Harold and/or Evalyn Wilson, Farm Account." That account was paid out on checks of Harold Wilson in his private business. The defendant was thus used by Wilson as an instrumentality for channeling the funds of the Loan Association of which he was president and managing officer from its depositary, the First National Bank, into his personal account in the Trust Company.

The defendant sent the checks to the Commerce Trust Company of Kansas City, Missouri, receiving credit on its account for the amount of each check. The checks were then collected from the First National Bank of Liberty, Missouri, and by that bank charged to the account of the Loan Association. After the checks were paid by the First National Bank statements of the account with the vouchers or paid checks were delivered to the Loan Association about every 30 days.

Over plaintiff's objection, in explanation of defendant's participation in the transaction, Kelly testified that Wilson opened the account about September, 1941. He then told Kelly that he had two farms between Kearney and Liberty at which he was handling livestock; that he wished to open a joint farm account for himself and his wife (Evalyn Wilson was his wife) in the defendant Trust Company for the purpose of paying his feed bills and other expenses on the farms; that from time to time he would send money which belonged to him by means of checks of the Loan Association to be credited to the account; that he would send them by mail; and that he would make them payable to the Trust Company as a protection against loss. Kelly told Wilson that would be all right.

Kelly testified further that: "Knowing him Wilson to be the president of the association, I told him we would be glad to handle it, and we did in that manner and put these stamps on them to indicate whose account they went to, such as we do many other checks." The stamp referred to and placed on the back of all the checks except one reads: "The Amount of this Item Deposited to the Credit of Harold and/or Evalyn Wilson, Farm Acct., in the Kearney Trust Co., Kearney, Mo. ____ Cashier."

Kelly testified, also, that knowing Wilson to be president of the Loan Association he accepted his statement as correct and true and relied upon it; that had he doubted the integrity of Wilson's statements he would not have handled the checks; but that he never investigated nor made inquiry concerning Wilson's authority.

Until this suit was brought in March, 1944, no protest or objection to the handling of the checks was ever made to the defendant. Chrisman testified that she did not know that the transactions were irregular; that when the statements came from the First National Bank Wilson always examined them and destroyed them, while the checks were placed in the files; that she never examined the checks nor noticed the stamp placed on the back of each of them by the defendant.

The trial of the case, after motions by both parties for a directed verdict were overruled, resulted in a verdict and judgment for the defendant on all counts of the complaint. Thereafter plaintiff's motion for judgment non obstante veredicto or for a new trial was overruled, as was also its motion for a rehearing. This appeal followed.

The plaintiff urges reversal of the judgment on three principal grounds: 1. That its motion for a directed verdict or for judgment non obstante veredicto should have been sustained. 2. That if the case were for the jury, the charge is erroneous. And 3. That the court erred in its rulings on the admission and exclusion of evidence.

Plaintiff's theory of defendant's liability based upon the facts established by the evidence is that: 1. The case is controlled by federal, not state or local, law. 2. The 15 checks made payable to the order of the Kearney Trust Company imported notice upon their face that the moneys represented by them belonged to the Loan Association, drawer of the checks. 3. Acceptance of the checks by the Trust Company imposed upon it the duty of paying out the money represented by the checks only when and as directed by the Loan Association. 4. Had the moneys called for by the checks belonged to Harold Wilson, the presumption is that they would have been drawn to his order. 5. Wilson's request to the Trust Company to credit the checks to his personal account for use in his personal business put the Trust Company on inquiry, and it failed to make inquiry at its peril. 6. The burden was on the defendant Trust Company (a) to plead and prove as a defense payment at the direction of the Loan Association, or (b) that Wilson had authority to direct that the checks be credited to his account.

The court instructed the jury as to Count I of the complaint, making the instruction applicable to each of the 15 counts thereof, as follows:

"The Court instructs the jury that if as to Count I of the complaint it has been proved by plaintiff: (a) that on or about November 12, 1941, there was received by defendant a check of $1000 of Liberty Federal Savings and Loan Association payable to defendant; and (b) that Liberty Federal Savings and Loan Association was not then indebted to defendant in any amount; and (c) that defendant obtained in cash or credit on that check the amount called for therein; and (d) that defendant has not repaid the amount so obtained to Liberty Federal Savings and Loan Association or to any assignee of the claim of Liberty Federal Savings and Loan Association against defendant; and (e) that the claim of Liberty Federal Savings and Loan Association has been assigned to plaintiff, then, that is, if the matters referred to as (a), (b), (c), (d) and (e) have been proved by plaintiff (the burden of proof as to those matters is on plaintiff), your verdict will be for plaintiff as to Count I, unless your verdict shall be for defendant on the grounds now to be stated. If you find the facts to be: (f) that the president of Liberty Federal Savings and Loan Association represented to defendant that that Association from time to time would send to defendant its checks payable to defendant and directed defendant that it should deposit the proceeds of those checks to the credit of Harold Wilson and/or Evalyn Wilson; and (g) that defendant received and deposited the check described in this principal instruction in accordance with that representation and direction, if you find that that representation was made and that that direction was given; and (h) that the defendant, in depositing the check as directed, if it did so deposit it, relied on the representation and direction of the president of Liberty Federal Savings and Loan Association and upon the assumption that he was acting for and on behalf of that Association and within the scope of his authority; and (i) that defendant did not have knowledge that the president of the Liberty Federal Savings and Loan Association did not have authority from the Association to make the representation and give the direction described, if he did not have such authority, and if defendant did not know facts from which it reasonably might have inferred that the president of Liberty...